Crude oil remains above $88/bbl, but despite the escalating conflict in the Gulf and the rising number of attacks in both the Strait of Hormuz and the Red Sea, prices have not reacted as sharply as they did when the conflict first erupted. This suggests that the geopolitical risk premium is becoming increasingly priced in unless there is a major disruption to oil supplies.
For Pakistan, higher oil prices undoubtedly pose an inflation risk. However, a significant deterioration in the country's external finances appears unlikely. Pakistan's macroeconomic position has improved considerably, supported by stronger external accounts, sovereign credit rating upgrades, and the government's renewed ability to access international bond markets. These factors provide a much stronger buffer against external shocks than was the case in previous oil price spikes.
 |